Fiscal and Monetary Policy Interaction Post Indonesian Institutional Transformation: Vector Autoregression Approach

Authors

DOI:

https://doi.org/10.31685/kh78mn12

Keywords:

Fiscal Policy, Monetary Policy, GDP Growth, Policy Interaction

Abstract

A consensus to separate fiscal and monetary authority emerged to achieve optimal macroeconomic conditions through credible policy. This paper aims to analyze the interaction between fiscal-monetary policy after Indonesian institutional transformation in 1999 and its impact on GDP. Using Vector Autoregression approach, this study utilizes 7 variables from 1999 Q2 – 2019 Q4: government revenue, spending and financing as fiscal policy variables, interest rate and money supply as monetary policy variables, GDP as macroeconomic variable, and CPI to deflate all variables.

This study showed that fiscal and monetary policy in Indonesia tend to have a mixed interaction: the fiscal and monetary authorities not only jointly implementing the same expansionary or contractive policy but also mutually substitute or implementing opposing policies in the same time. In terms of interactions with GDP, fiscal policy showed a stronger and more direct influence rather than monetary policy. Increasing government spending and money supply while reducing or at least maintaining the stability of government revenues, government financing, and interest rates are the best policy mix to support GDP growth in the short run. In the long run, all variables in the study, except money supply, support GDP growth. The results emphasize the importance of strengthening policy framework and coordination to achieve optimal GDP growth.

References

Abdul, S. O. (2019). Interrogating the rationale for monetary and fiscal policies. June. https://www.zbw.eu/econis-archiv/bitstream/11159/3720/1/1676284311.pdf

Afonso, A., & Gonçalves, L. (2020). The Policy Mix in the US and EMU: Evidence from a SVAR Analysis. The North American Journal of Economics and Finance, 51(February). https://doi.org/https://doi.org/10.1016/j.najef.2018.08.023

Akhyar, M., Syahnur, S., & Asmawati, A. (2019). Analisis Interaksi Kebijakan Fiskal Dan Moneter Terhadap Perekonomian Indonesia. Jurnal Perspektif Ekonomi Darussalam, 5(2), 112–123. https://doi.org/10.24815/jped.v5i2.15080

Alcidi, C., & Thirion, G. (2016). The Interaction Between Fiscal and Monetary Policy – Before and After the Financial Crisis. In Firstrun (Issue 649261). http://www.firstrun.eu/files/2016/07/D4.2_Policy_mix_final_ed.pdf

Bungin, S. (2017). The impact of fiscal and monetary shock on economic activity in Serbia: SVAR approach. Industrija, 45(2), 101–111. https://doi.org/10.5937/industrija45-13531

Büyükbaşaran, T., Çebi, C., & Yılmaz, E. (2020). Interaction of monetary and fiscal policies in Turkey. Central Bank Review, 20(4), 193–203. https://doi.org/10.1016/j.cbrev.2020.03.001

Dornbusch, R., Fischer, S., & Startz, R. (2011). Macroeconomics (11th ed.). McGraw-Hill.

Firdaus, M. (2020). Aplikasi Ekonometrika dengan E-views, Stata, dan R (Elviana (ed.); 1st ed.). IPB Press.

Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). McGraw-Hill/Irwin.

International Monetary Fund. (2017). A Greater Role for Fiscal Policy. April, 1–44. https://www.imf.org/external/pubs/ft/ar/2017/eng/assets/fmc1.pdf

Jahan, S., Mahmud, A. S., & Papageorgiou, C. (2014, September). What Is Keynesian Economics? Finance and Development, 51(3), 53–55. https://www.imf.org/en/Publications/Finance-Development/Issues/2016/12/31/Finance-Development-September-2014-41373

Jazbec, B., & Banerjee, B. (2017). Rethinking Monetary – Fiscal Policy Coordination.

Rahayu, A. S. (2014). Pengantar Kebijakan Fiskal (2nd ed.). PT Bumi Aksara.

Ramayandi, A., & Tjahjawandita, A. (2014). Permintaan Agregat dalam Perekonomian Tertutup: Perilaku Pasar Barang dan Pasar Uang. In Teori Ekonomi Makro Lanjutan (pp. 1–33). Universitas Terbuka.

Setiawan, H. (2018). Analisis Dampak Kebijakan Fiskal Dan Moneter Terhadap Kinerja Makroekonomi Di Indonesia Dengan Model Structural Vector Autoregression (Svar). Jurnal Ilmu Ekonomi Terapan, 3(2). https://doi.org/10.20473/jiet.v3i2.9169

Tule, M. K., Onipede, S. F., & Ebuh, G. U. (2020). Monetary and fiscal policy mix in a small open economy: Evidence from Nigeria. Scientific African, 8. https://doi.org/10.1016/j.sciaf.2020.e00346

Warjiyo, P., & Solikin. (2003). Kebijakan Moneter di Indonesia. Pusat Pendidikan dan Studi Kebanksentralan Bank Indonesia. http://lib.ibs.ac.id/materi/BI Corner/Terbitan BI/Seri Kebanksentralan/6. Kebijakan Moneter di Indonesia.pdf

Downloads

Published

2024-04-03

Issue

Vol. 6 No. 1 (2022): In Press

Section

Articles

License

Copyright (c) 2024 Kajian Ekonomi dan Keuangan

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

STATEMENT OF AUTHENTICITY AND COPYRIGHT RELEASE

I hereby certify that:

  1. The article (Article title) is authentic and never being published previously or will be published in other publication as well as not a plagiarism in any form.
  1. The article does not have any issue with other parties, regarding of the publication copyright.
  1. All the authors have read this statement and agree with the name and sequence.
  1. Hereby, I transfer the copyright of my article (Article title) to the KEK Editorial Board . this copyright transfer includes a right to reproduce a photograph for the similar article and its translation. This is also including a right to upload the article into a computer system which disseminated widely on the internet.
  1. Hereby, I agree with my article (Article title) to be published by KEK Volume (xx) Edition (x), under Creative Common Attribution- NonCommercial-ShareAlike 4.0 licensing. This is also including a right to upload the article into a computer system which disseminated widely on the internet.

Name : (Full Name)
Date : (Signing date)